Three former employees of a failed Virginia credit union have been accused of loan participation fraud in a $1.7 million civil lawsuit by the $20 million Northern Piedmont Federal Credit Union of Culpeper, Va.
The former manager of the shuttered $13.8 million Lynrocten Federal Credit Union, Linda Susan Newcomb, along with employees Teresa Humphries and Becky Nichols are named as defendants in the suit.
The Background: NCUA Pulls Plug on Lynrocten FCU
Northern Piedmont wired more than $3 million to Lynrocten from 2009 to 2011 and entered into agreements based on fraudulent misrepresentations, according to the civil complaint.
“Newcomb and Humphries concocted a scheme to originate loans, allegedly including the loans in which Northern Piedmont purchased participations, in members’ names without the members’ authorization,” the complaint states.
Newcomb negotiated each agreement on behalf of Lynrocten, provided a list of borrowers’ names and loan account information, and “represented to Northern Piedmont that actual loans secured by shares or vehicles would be the basis of these agreements,” the court documents said.
In addition to the missing $1.7 million, Northern Piedmont seeks interest and punitive damages, according to court documents.
“Northern Piedmont remains very strong financially, but we will do everything we can to recover the money that is owed to us and we appreciate all the help that our attorneys and the NCUA have given us,” Dortha Johnson, president/CEO of the 4,400-member credit union, told Credit Union Times.
When the 1,068-member Lynrocten of Lynchburg, Va., was liquidated by the NCUA in May, local media had reported that an investigation was underway, but the U.S. Attorney's Office declined to comment when contacted this week by the Credit Union Times.
"As of right now we would have no public comment on the issue, even so far as being unable to confirm or deny if there is an open investigation into the matter," said Brian McGinn, a public affairs specialist with the U.S. Attorney's Office, Western District of Virginia.
The lack of arrests has prompted scrutiny from some former Lynrocten FCU members and local media.
“Everybody’s wondering why [arrests have not been made], or we haven’t heard anything,” Phyllis Wiley, a former Lynrocten member, said in a Nov. 3 article in the Lynchburg paper The News & Advance. “I think everybody’s feeling that something should be done, or we should be told what’s going on.”
Humphries allegedly confessed in April and May that she and Newcomb had taken loans out in members’ names and deposited the funds in their family members’ accounts for a decade.
However, Newcomb denied being involved and Humphries later retracted the statement, according to court records.
Northern Piedmont learned from NCUA investigators that only one loan allegedly supporting the loan participation agreements was legitimate, according to court documents, and that loan was made to Newcomb’s daughter, who has since declared bankruptcy.